Like clockwork, nice fat divy payments showed up in my WellsTrade account today from the SFI preferred.
With the big runup in the common and the preferred still at $15.35 to $15.95, I've got to think that the preferred are a more compelling investment at this point. They still have $9+ of appreciation potential.
For those looking to day trade, to write naked puts, buy-write into a position, or to catch a short squeeze etc., the common is much more exciting . . . but how high and how quickly can it sustainably rise? I think the common can get to $15 when SFI refinances several billion in debt, but (a) the preferred probably goes to $24 at that time and collects another $2 in divies, and (b) the common may be subject to dilution if the new lender is non-traditional as some have speculated.
Just some thoughts.
>>jan $7.5 are currently $.50 and the april $8 are $.80 and would be at least that amount or more if sfi is $8.00 on the jan expiry day..<<
Jim, this roll from Jan to April is a very interesting thought. It clearly gives you $0.50 more upside at the strike price. When I first read your post I thought, here is a good idea I should look into. I spent a little time looking at this. However, I quickly came up with some overwhelming reasons to refrain:
1). When SFI announces a big refi that ensures its survival for several years, the stock could approach book value . . . it could easily spike to $15. This spike could be based on revaluation of the company closer to book, it could be based on a short squeeze, or it could be from a combination of factors.
2). The chance of SFI announcing a multibillion refi by late April 2011 is many, many times higher than the chance of SFI announcing a refinancing before late January.
3). By late January, there will likely be no news from SFI. There won't be a 10-K, proxy statement or anything other than perhaps a surprise 8-K. By late April, we will have the Annual Report & 10-K, which will include the Q4 financial statements, and we'll have the proxy statement.
4). Your figures show that you take $0.30 in cash from the roll, but the CBOE is showing an ask of $0.55 for the $7.50 Jan call and bid of $0.80 for the April $8.00 call, so I calculate that one takes only $0.25 in cash from the roll. The $0.05 difference may be minor . . .
Given these premises (especially 1 & 2), I'd be much more comfortable shorting or going covered call the Jan. $7.50 than shorting or going covered call the April $8.00 or any of the 2012 or 2013 leaps.
Again, I do appreciate the thoughts and ideas. Getting each other to think is very helpful.
in early nov there was the possible bk warning which i am sure we both agree was aimed squarely at the bond holders of the 2011 debt.
subsequent events and great moves by management have lowered that possibilty dramatically and we have riden a nice rebound fueled in part by panicing shorts who are losing bigtime with each passing week. i can only imagine the fireworks if we take out the spring highs of around $7.80 soon.
i wish every long here would even just sell near month $10 covered calls to remove their long shares from their brokers available for short inventory to add more fuel to that fire.
the dec 15th short inventory position will be very interesting when its released.
those looking for a good close month covered call can look at doing the jan $7.50 for the $.50 available which is $8.00 on their shares.
no problem with rolling that position up to april $8 IF required at the expiry day in jan.
jan $7.5 are currently $.50 and the april $8 are $.80 and would be at least that amount or more if sfi is $8.00 on the jan expiry day..
in the meantime $.50 for the jan $7.50 calls is over a 8% one month return.
There have definitely been some profitable opportunities.
The example you cited makes my point, however.
When you sold the Jan 13 7.5 calls for 2.40 - the implied 9.90 value of the strike + call was 4.65 above the stock price, or about 88%.
The current premium of 2.90 and its implied 10.40 is only 3.32 above the close of 7.38, or about 44%.
The breakeven has risen from 2.85 (5.25-2.40) to the current 4.48 (7.38 - 2.90).
Surely there is a material change in the reward risk for such a trade. I'm not saying the current trade is unattractive - just that its less attractive than before (i.e. more risk, less reward).
We do have more information about iStar now than a month ago and certainly there are a number of interesting options strategies available - but the incredible low hanging fruit of November has disappeared.
you are correct in the drop in the premiums from the astronomical level they were a few weeks ago BEFORE more capital was raised by the company.
the $7.50 2013 leaps are a perfect example has i received about $2.40 when the stock was $5.25 and now they are up $.50 to the $2.90 level with the stock having risen over $2.15 in value.
i could collapse my position now and walk away with a pretty nice $1.65 profit.
same for the one year $7.50 i sold for $1.85 now at $2.05
The Pork Chop Rule of Investing! I love it and give your post 5 stars!
Actually, you have nailed the bottom line on successful investing - I can't think of a better way of putting it tnan "when pork chops are on sale for 99 cents a pound - then STOCK UP!"
I agree with you that iStar offers a variety of possibilities for options strategies, but its IV has declined markedly in the last several weeks. In mid November IV's were over 100% - at the close today the average IV of calls and puts was about 68%. Some things that offered compelling rewards just a few weeks ago have muted considerably.
There are many good reasons to avoid encumbering shares with covered calls - everyone's situation is different.
As to this observation you made:
>sfi has about the largest option premiums available on any stock.<
I ran a scan a few minutes ago and found that iStar was ranked 113th in IV, meaning that 112 stocks had larger premiums than iStar.
One big problem with SFI's options array is its relative lack of liquidity and the large, sometimes huge spread, which makes exits, rolls and repair strategies potentially costly.
I currently hold several different options positions in iStar - but the bottom line for me is that options strategies can play a useful part in an investment program but are not the only successful approach and are not for everyone.
Just my two cents.
Jim, Can the shares be sold before expiration? If so...what happens to the premium received? Also, if SFI is above the strike price at expiry is it a given that the shares will be called away?
go out and buy a $20 stock option book.
in simple terms when you SELL a covered call you are getting a NON REFUNDABLE deposit from the call buyer who has the right but not the obligation to buy your shares at the specified strike price before their expiry date at any time.
you get the proceeds of the call sale TODAY..cash credited to you account.
that cash is NOT included in the purchase price of your shares.
ie if the call buyer decides to exercise his option and you received $3.00 upfront, his real cost is $10.50 on your $7.50 shares.
he needs sfi to be at $10.50 just to break even when and if he sells the shares.
i dont know what you paid for your sfi shares but if it was $5.50, the $3.00 cash you receive from selling the covered call basically reduces your NET cost on them from $5.50 to $2.50 per share
if taken at $7.50, you tripled your money.
in the meantime, the $3 cash you received basically protected your current shares from a $3.00 drop in value from todays $7.40 shares price. thats $4.40 a share.
sfi has about the largest option premiums available on any stock.
take advantage of it to increase your return and lower your risk.
for an example if you paid $3.70 for sfi at 7.40 you have a double on your invested capital..nice
however if you paid that same $3.70 and TODAY sold the $7.50 covered call for $3.00, you reduced your share cost to just $.70 NET so that at $7.00 you have a 10 bagger ..not a mere double
you also only have $.70 of your capital at risk in case of a major pullback, share dilution etc
you said you were long 3700 shares.
if you sold just 10 contracts which is for 1000 shares, you would receive $3000 into your account on monday.
doing 37 contracts at $3 would credit your account with $11,100
thanks for the advice
I really wish I understood what you are telling me
I know we are all stock picking Rhodes Scholars on the internet - but really I am an electrician
all I really know is that when pork chops are on sale for 99 cents a pound - then STOCK UP!